An independent analysis by The Reward Practice which placed ASX 300 annual reports under the spotlight, has shown for the lowest performing companies over 70% of reward incentives were paid to CEOs in metals and mining compared to just 13% for non-mining sectors.
The analysis isolated the top performing and lowest performing companies across all industries, and differentiated the results against the metals and mining companies.
Although the metals and mining sector reported lower than average fixed salary percentage allocations in the bottom performing companies, on closer inspection total executive remuneration (salary and incentives) was largely obtainable over a relatively short period of less than two years and evaluated on mostly ‘hygiene’ measures that do not underpin business growth.
Our research highlights a number of sizable reward payments despite these companies reporting an average shareholder loss of some 21%.
In many cases within the mining sector, CEO rewards include non-financial metrics, such as environment, company culture and safety. The industry is less likely to include a profit gateway, which means rewards can be achieved regardless of the company’s financial performance or position. There is increasing pressure for companies to reconsider their executive remuneration packages.
In one case a CEO received 135% of their STI target against a loss of 12% to shareholders. On closer analysis we see the issue is not merely about the distribution of fixed salary payments and incentives, but also what the rewards are measured and reported against.
A full report is available for download by clicking the below link:
WHY ARE THE FINDINGS IMPORTANT?
The 2012 Corporations Act introduced the ‘two strikes’ rule, whereby shareholder votes against unsatisfactory remuneration reports can enact serious consequences on the company. Together with the Hon Scott Morrison’s recent Banking Executive Accountability Regime (BEAR) provision to defer bonus payments in the major banks by four years, and a number of media reports highlighting highly paid executives, the spotlight is on company boards to demonstrate stronger performance alignment in their remuneration packages. More shareholders are using their voting power to influence decisions on CEO and executive remuneration.
Based on information drawn from the analysis, evidence exists that a number of top tier organisations are embracing or taking steps to adjust ‘homogenous’ methodologies and move towards a more tailored structure aligned with the business. However, the metals and mining sectors in the mid to lower tiers have been slow to act in this space and we believe boards need to plan ahead and determine the remuneration strategy well before the performance year commences.
For more information contact Warren Land on firstname.lastname@example.org or 0412 774 206.